Net Present Value

Feb 3rd, 2012

Studypool Tutor

California Institute of Technology

Price: $5 USD

Tutor description

Having heard of your knowledge of present value techniques, you have been asked to
testify as an expert witness in the following lawsuit.
Several homeowners in a nearby community have organized to protest against alleged
gouging on the part of a local lending institution. One resident presents his payment book
as evidence.
The resident has a 30-year, fixed rate loan at 6 percent interest for $200,000. He got the
loan 10 years ago and has been making equal annual payments of $14,529.60 ever since.
He observes that he has paid the lending company $145,296.00 yet his payment book
indicates that the principal due on the loan has only declined by $33,345.40. He presents
this as obvious proof of "gouging on the part of the money changers".
Required:
Do you agree? Why, why not? (Support your answer with any relevant calculations.)

Having heard of your knowledge of present value techniques, you have been asked totestify as an expert witness in the following lawsuit.Several homeowners in a nearby community have organized to protest against allegedgouging on the part of a local lending institution. One resident presents his payment bookas evidence.The resident has a 30-year, fixed rate loan at 6 percent interest for $200,000. He got theloan 10 years ago and has been making equal annual payments of $14,529.60 ever since.He observes that he has paid the lending company $145,296.00 yet his payment bookindicates that